Forward Looking Statements

Statements in this Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this document are certain statements which are not historical or current fact and constitute "forward-looking statements" within the meaning of such term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual financial or operating results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. Such forward looking statements are based on our best estimates of future results, performance or achievements, based on current conditions and the most recent results of the Company. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "may", "will", "potential", "opportunity", "believes", "belief", "expects", "intends", "estimates", "anticipates" or "plans" to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in our reports and registration statements filed with the Securities and Exchange Commission.

Executive Overview

The results of operations for the three months and six months ended June 30, 2009 include the results of ICS which was acquired effective December 31, 2007. We recorded a 4.0% increase in revenues for the three months ended June 30, 2009 despite a delay in the receipt of the MK 119 order by ICS that is accounted for under the percentage of completion method. Prior year revenues were adversely affected by a shipment delay of a product covered under a substantial contract for the Orbit Instrument Division. As a result, sales from the Electronics Group increased by 4.9% and sales from the Power Group increased by 1.6%. Due to higher gross margins and decreased selling, general and administrative expenses and interest expense during the current period, we recorded net income of $6,000 for the three months ended June 30, 2009, compared to a net loss of $306,000 for the three months ended June 30, 2008.

Net sales for the six month period ended June 30, 2009 decreased by 2.6% from the prior six month period due to a 6.4% decrease in sales from the Electronics Group which was partially offset by a 3.0% increase from the Power Group. Gross profit as a percentage of sales for the six month period ended June 30, 2009 remained the same from the prior six month period. Due to the decrease in revenue and profitability from ICS due to the delay in the MK 119 contract, we recorded a net loss of $347,000 for the six months ended June 30, 2009, compared to a loss of $295,000 for the six months ended June 30, 2008.

Our backlog at June 30, 2009 was approximately $12,400,000 compared to $15,300,000 at June 30, 2008. Backlog was $14,300,000 at March 31, 2009. Backlog was also affected by the delay in the MK 119 contract as well as a $1.9 million RCU order, expected in the first half of 2009 that was received in August 2009. There is no seasonality to our business. Our shipping schedules are generally determined by the shipping schedules outlined in the purchase orders received from our customers.

Our success over the past few years has significantly strengthened our balance sheet as evidenced by our 5.2 to 1 current ratio at June 30, 2009. We currently have a $3,000,000 credit facility in place. Our inventory levels have increased from year end which is primarily due to ICS, during the recent quarter, commencing the procurement process for materials for the MK119 contract. As a result of lower than expected profitability due to the aforementioned contract delays, we were not in compliance with two of its financial covenants at June 30, 2009.

In August 2008, our Board of directors authorized a stock repurchase program allowing us to purchase up to $3.0 million of our outstanding shares of common stock in open market or privately negotiated transactions. During the period from August 2008 through June 30, 2009, we repurchased approximately 275,000 shares at an average price of $2.29 per share. Total consideration for the repurchased stock was approximately $629,000. From August 2008 through August 10, 2009, we purchased approximately 334,000 shares of its common stock for total cash consideration of $796,000 representing an average price of $2.39 per share.

Critical Accounting Policies

The discussion and analysis of our financial condition and the results of our operations are based on our financial statements and the data used to prepare them. Our financial statements have been prepared based on accounting principles generally accepted in the United States of America. On an on-going basis, we re-evaluate our judgments and estimates including those related to inventory valuation, the valuation allowance on our deferred tax asset, goodwill impairment, valuation of share-based compensation, revenue and cost recognition on long-term contracts accounted for under the percentage-of-completion method and other than temporary impairment on marketable securities. These estimates and judgments are based on historical experience and various other assumptions that are believed to be reasonable under current business conditions and circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect more significant judgments and estimates in the preparation of the consolidated financial statements.

Inventories

Inventory is valued at the lower of cost (specific, average and first-in, first-out basis) or market. Inventory items are reviewed regularly for excess and obsolete inventory based on an estimated forecast of product demand. Demand for our products can be forecasted based on current backlog, customer options to reorder under existing contracts, the need to retrofit older units and parts needed for general repairs. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have an impact on the level of obsolete material in its inventory and operating results could be affected, accordingly. However, world events have forced our country into various situations of conflict whereby equipment is used and parts may be needed for repair. This could lead to increased product demand as well as the use of some older inventory items that we had previously determined obsolete.

Deferred tax asset

At December 31, 2008, we had an alternative minimum tax credit of approximately $573,000 with no limitation on the carry-forward period and federal and state net operating loss carry-forwards of approximately $20,000,000 and $7,000,000, respectively that expire through 2020. Approximately, $16,000,000 of federal net operating loss carry-forwards expire between 2010 and 2012. In addition, we receive a tax deduction when our employees exercise their non-qualified stock options thereby increasing our deferred tax asset. We record a valuation allowance to reduce our deferred tax asset when it is more likely than not that a portion of the amount may not be realized. We estimate our valuation allowance based on an estimated forecast of our future profitability. Any significant changes in future profitability resulting from variations in future revenues or expenses could affect the valuation allowance on our deferred tax asset and operating results could be affected, accordingly.

Impairment of Goodwill

We have significant intangible assets related to goodwill and other acquired intangibles. In determining the recoverability of goodwill and other intangibles, assumptions are made regarding estimated future cash flows and other factors to determine the fair value of the assets. After completing the impairment testing of goodwill and other intangible assets pursuant to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), we concluded an impairment charge should be taken at December 31, 2008 in connection with the recorded goodwill arising from its acquisitions made between 2005 and 2007. If estimates or their related assumptions used in the current testing change in the future, we may be required to record further impairment charges.

Share-Based Compensation

Effective January 1, 2006, we began recognizing share-based compensation under SFAS No. 123(R), which requires the measurement at fair value and recognition of compensation expense for all share-based awards. Total share-based compensation expense was $157,000 and $78,000 for the six and three months ended June 30, 2009, respectively, compared to $94,000 and $51,000 for the comparable prior year periods. The estimated fair value of stock options granted in 2008 were calculated using the Black-Scholes model. This model requires the use of input assumptions. These assumptions include expected volatility, expected life, expected dividend rate, and expected risk-free rate of return.

Revenue and Cost Recognition

Revenue and costs under larger, long-term contracts are reported on the percentage-of-completion method. For projects where materials have been purchased but have not been placed in production, the costs of such materials are excluded from costs incurred for the purpose of measuring the extent of progress toward completion. The amount of earnings recognized at the financial statement date is based on an efforts-expended method, which measures the degree of completion on a contract based on the amount of labor dollars incurred compared to the total labor dollars expected to complete the contract. When an ultimate loss is indicated on a contract, the entire estimated loss is recorded in the period. Assets related to these contracts are included in current assets as they will be liquidated in the normal course of contract completion, although this may require more than one year.

Other than Temporary Impairment

We currently have in excess of $1,000,000 invested in government and corporate bonds. We treat our investments as available for sale pursuant to SFAS No. 115 which requires us to assess our portfolio each reporting period to determine whether declines in fair value below book value are considered to be other than temporary. We must first determine that we have both the intent and ability to hold a security for a period of time sufficient to allow for an anticipated recovery in its fair value to its amortized cost. In assessing whether the entire amortized cost basis of the security will be recovered, we compare the present value of future cash flows expected to be collected from the security (determination of fair value) with the amortized cost basis of the security. If the impairment is determined to be other than temporary, the investment is written down to its fair value and the write-down is included in earnings as a realized loss, and a new cost is established for the security. Any further impairment of the security related to all other factors is recognized in other comprehensive income. Any subsequent recovery in fair value is not recognized until the security either is sold or matures.

We use several factors in our determination of the cash flows expected to be collected including i) the length of time and extent to which market value has been less than cost; ii) the financial condition and near term prospects of the issuer; iii) whether a decline in fair value is attributable to adverse conditions specifically related to the security or specific conditions in an industry and iv) whether interest payments continue to be made and v) any changes to the rating of the security by a rating agency. Although we received all our interest payments during the current year, we took an other than temporary impairment write-down of $39,000 for the three months ended March 31, 2009 consisting of bonds held in two separate issuers in which we determined the decline in fair value was due to adverse conditions specifically related to the security or specific conditions in an industry. We did not take any further other than temporary impairment charges for the three months ended June 30, 2009.

Results of Operations

Three month period ended June 30, 2009 v. June 30, 2008

We currently operate in two industry segments, the Electronics Group and the Power Group. Our Electronics Group, consisting of our Orbit Instrument Division and its Tulip subsidiary, are engaged in the design and manufacture of electronic components and subsystems and its ICS subsidiary performs system integration for Gun Weapons Systems and Fire Control Interface as well as logistics support and documentation. Our Power Group consists of our Behlman subsidiary and is engaged in the design and manufacture of commercial power units. The results of operations for the three and six month periods ended June 30, 2009 and June 30, 2008 include the operations of ICS for the entire period since the acquisition was completed effective, December 31, 2007.

Consolidated net sales for the three month period ended June 30, 2009 increased by 4.0% to $6,106,000 from $5,873,000 for the three month period ended June 30, 2008. Sales from the Electronics Group increased by 4.9%, despite the delay in the receipt of the MK 119 order by ICS that is accounted for under the percentage of completion method. Sales for the quarter ended June 30, 2008 were adversely affected when our Orbit Instrument Division was verbally advised by one of its customers to provide support for several modifications to a product that was under a substantial contract with many of the units scheduled for shipment during the second quarter. As a result of the request, those deliveries that were scheduled for the second quarter were delayed to the end of the third quarter and fourth quarter of 2008 resulting in significantly lower revenues for the operating unit for the second quarter. Sales from the Power Group slightly increased by 1.6% for the quarter ended June 30, 2009 as compared to the comparable period in the prior year.

Gross profit, as a percentage of sales, for the three months ended June 30, 2009 increased to 41.9% from 39.7% for the three month period ended June 30, 2008. This increase resulted from a higher gross profit from both the Company's Electronics Group and Power Group. The increase in gross profit from the Electronics Group was principally due to a higher gross profit from the Orbit Instrument Division due to the aforementioned shipping delay that affected gross profit in the prior year quarter, a higher gross profit from Tulip due to slightly higher sales and product mix and despite a lower gross profit from ICS due to the aforementioned MK 119 contract delay. The increase in gross profit from the Power Group was principally due to product mix.

Selling, general and administrative expenses decreased by 2.5% to $2,564,000 for the three month period ended June 30, 2009 from $2,631,000 for the three month period ended June 30, 2008 principally due to lower selling, general and administrative costs from the Electronics Group that was partially offset by higher selling, general and administrative costs from the Power Group and higher corporate costs. Selling, general and administrative expenses, as a percentage of sales, for the three month period ended June 30, 2009 decreased to 42.0% from 44.8% for the three month period ended June 30, 2008 principally due to the aforementioned decrease in costs from the Electronics Group along with an increase in sales from the business segment.

Interest expense for the three months ended June 30, 2009 decreased to $42,000 from $80,000 for the three months ended June 30, 2008 due to a decrease in the amounts owed to lenders in the current period as a result of the pay down of our term debt and a decrease in interest rates.

Investment and other income for the three month period ended June 30, 2009 decreased to $56,000 from $82,000 for the three-month period ended June 30, 2008 principally due to a decrease in the amounts invested during the current period and to a decrease in interest rates.

Net income before taxes was $9,000 for the three months ended June 30, 2009, compared to a loss before taxes of $299,000 for the three months ended June 30, 2008. The increase in net income was principally due to (i) the increase in sales from both the Orbit Instrument Division and Tulip, (ii) an increase in gross profit, (iii) a decrease in selling, general and administrative expenses, and, (iv) a decrease in interest expense, despite a decrease in revenue and profitability from ICS due to the contract delay for the MK 119 and a decrease in investment and other income.

The income tax provision for the three months ended June 30, 2009 was $3,000 compared to $7,000 for the three months ended June 30, 2008 consisting of state income taxes that cannot be offset by any state net operating loss carry-forwards.

As a result of the foregoing, net income for the three months ended June 30, 2009 was $6,000 compared to a net loss of $306,000 for the three months ended June 30, 2008.

Earnings before interest, taxes and depreciation and amortization (EBITDA) for the three months ended June 30, 2009 increased to $232,000 compared to a loss of $21,000 for the three months ended June 30, 2008. Listed below is the EBITDA reconciliation to net income:

                                        Three  months  ended
                                            June  30,
                                            ---------
                                     2009               2008
                                     ----                ----

Net  (loss)  income                $ 6,000            $(306,000)
Interest  expense                   42,000               80,000
Income  tax  expense                 3,000                7,000
Depreciation  and  amortization    181,000              198,000
                                   -------              -------
EBITDA                          $  232,000           $  (21,000)
                                ==========           ===========

EBITDA is a non-GAAP financial measure and should not be construed as an alternative to net income. An element of our growth strategy has been through strategic acquisitions which have been substantially funded through the issuance of debt. This has resulted in significant interest expense and amortization expense. EBITDA is presented as additional information because we believe it is useful to our investors and management as a measure of cash generated by our business operations that will be used to service our debt and fund future acquisitions as well as provide an additional element of operating performance.

Six month period ended June 30, 2009 v. June 30, 2008

Consolidated net sales for the six month period ended June 30, 2009 decreased by 2.6% to $12,153,000 from $12,483,000 for the six month period ended June 30, 2008 due to lower sales from our Electronics Group that was partially offset by increased sales from the Power Group. Sales from the Electronics Group decreased by 6.4% principally due to the delay in the receipt of the MK 119 order by ICS that is accounted for under the percentage of completion method and despite during the prior period, our Orbit Instrument Division being verbally advised by one of its customers to provide support for several modifications to a product that was under a substantial contract, which significantly lowered sales during the second quarter. Sales from the Power Group increased by 3.0% for the current six month period compared to the prior year.

Gross profit, as a percentage of sales, for the six months ended June 30, 2009 and June 30, 2008 remained the same at 39.8%. Gross profit from our Electronics Group slightly increased during the current period due to increased sales from the Orbit Instrument Division and Tulip and product mix; and despite a decrease in sales from ICS. Gross profit from the Power Group slightly decreased during the period principally due to product mix.

Selling, general and administrative expenses decreased by 1.6% to $5,165,000 for the six month period ended June 30, 2009 from $5,249,000 for the six month period ended June 30, 2008 principally due to lower selling, general and administrative costs from the Electronics Group which was partially offset by higher selling, general and administrative costs from the Power Group and higher corporate costs. The lower selling, general and administrative costs from the Electronics Group was principally due to certain cost cutting initiatives and to a decrease in the non-cash amortization of intangible assets, due to certain of those assets becoming fully amortized in a prior period. Selling, general and administrative expenses, as a percentage of sales, for the six month period ended June 30, 2009 increased to 42.5% from 42.0% for the six month period ended June 30, 2008 principally due to the reduction in sales from the Electronics Group that was partially offset by the decrease in expenses.

Interest expense for the six months ended June 30, 2009 decreased to $88,000 from $182,000 for the six months ended June 30, 2008 due to a decrease in the amounts owed to lenders in the current period as a result of the pay down of our term debt and to a decrease in interest rates.

Investment and other income for the six month period ended June 30, 2009 decreased to $76,000 from $178,000 for the six-month period ended June 30, 2008 principally due to a decrease in the amounts invested during the current period, a decrease in interest rates and a $39,000 other than temporary impairment charge related to certain corporate bonds held by us taken in the first quarter of 2009.

Loss before income taxes increased to $344,000 for the six months ended June 30, 2009 from the loss before income taxes of $288,000 for the six months ended June 30, 2008. The increase in the loss was principally due to a decrease in revenue and profitability from ICS due to the contract delay on the MK 119 and a decrease in investment and other income, despite an increase in sales from both the Orbit Instrument Division and Tulip, a decrease in selling, general and administrative expenses and a decrease in interest expense.

The income tax provision for the six months ended June 30, 2009 was $3,000 compared to $7,000 for the six months ended June 30, 2008 consisting of state income taxes that cannot be offset by any state net operating loss carry-forwards.

As a result of the foregoing, net loss for the six months ended June 30, 2009 increased to $347,000 from the net loss of $295,000 for the six months ended June 30, 2008.

Earnings before interest, taxes and depreciation and amortization (EBITDA) for the six months ended June 30, 2009 decreased to $104,000 for the six months ended June 30, 2008 compared to $318,000 for the six months ended June 30, 2008. Listed below is the EBITDA reconciliation to net income:

                                           Six  months  ended
                                              June  30,
                                              ---------
                                     2009                     2008
                                     ----                     ----

Net  (loss)  income               $(347,000)             $(295,000)
Interest  expense                    88,000                182,000
Income  tax  expense                  3,000                  7,000
Depreciation  and  amortization     360,000                424,000
                                   --------                -------
EBITDA                           $  104,000               $318,000
                                  =========               ========

Material Change in Financial Condition

Working capital decreased to $16,772,000 at June 30, 2009 compared to $17,136,000 at December 31, 2008. The ratio of current assets to current liabilities was 5.2 to 1 at June 30, 2009 compared to 4.4 to 1 at December 31, 2008. The decrease in working capital was primarily attributable to the net loss for the period, repayments of debt and the purchase of treasury stock.

Net cash provided by operations for the six month period ended June 30, 2009 was $1,355,000, primarily attributable to the decrease in accounts receivable and the non-cash amortization of intangible assets, depreciation and stock compensation expense, despite the net loss for the period, the increase in inventory and the decrease in accounts payable. Net cash used in operations for the six month period ended June 30, 2008 was $771,000, primarily attributable to the net loss for the period, the non-cash deferred income, an increase in inventory and costs and estimated earnings in excess of billings, a decrease in accounts payable, accrued expenses and income taxes payable, despite the non-cash amortization of intangible assets, the decrease in accounts receivable and the increase in customer advances.

Cash flows provided by investing activities for the six month period ended June 30, 2009 was $4,000, primarily attributable to the sale of marketable securities and the sale of fixed assets that was partially offset by the purchase of fixed assets. Cash flows provided by investing activities for the six month period ended June 30, 2008 was $799,000, primarily attributable to the sale of marketable securities that was partially offset by the purchase of marketable securities, the purchase of property and equipment and additional costs associated with the ICS acquisition.

Cash flows used in financing activities for the six month period ended June 30, 2009 was $1,309,000, primarily attributable to the repayment of long term debt and the purchase of treasury stock that was partially offset by the exercise of stock options. Cash flows used in financing activities was $1,433,000, primarily attributable to the repayment of long term debt that was partially offset from loan proceeds from the our line of credit.

In December 2007, we entered into an amended $3,000,000 credit facility with a commercial lender secured by accounts receivable, inventory and property and equipment(the "Line of Credit"). In April 2005, we entered into a five-year $5,000,000 Term Loan Agreement to finance the acquisition of Tulip ("Tulip Term Loan") and its manufacturing affiliate. In December 2007, we entered into a five-year $4,500,000 Term Loan Agreement to finance the acquisition of ICS ("ICS Term Loan"). In connection with the ICS Term Loan, the interest rates on both term loan agreements, including the Tulip Term and ICS Term Loan, and the Line . . .